Physics, economics and ecology
A key insight of ecological economics is that it aims towards an economic theory that takes into account the reality of nature, namely the laws of thermodynamics; a theory where nature is not merely an input, but the foundation upon which all economic activity takes place. Modern economic assumptions The study of economics assumes the following inputs, which are then used to produce output: land, labour and capital. These are assumed to be set stocks which can be added or subtracted in varying proportions to affect the quantity and quality of output. The way in which these factors are combined is demonstrated through the circular flow model. Consumers sell their labour in order to afford goods. Firms use capital and land to produce goods using the labour of consumers. In this locked circle, there is no waste, and equilibrium is arrived at through the process of demand meeting supply. Embedded in this is the notion of the possibility of permanent growth; assuming resources and energy are limitless, Since economics is a discipline that is halfway between the behavioural (for example, consumer choice theory) and the natural (questions of production inevitably involve resources) there exists a need for the field to be integrated with psychology and physics respectively. Problems A problem with this fundamental conception is that it does not take into account the laws of thermodynamics. Thefirst law of thermodynamics states that energy cannot be created or destroyed, only transferred into different forms. The second states that with all energy transfers (except heat) there is waste, and that all energy heads towards maximum entropy. In the suite of assumptions underpinning economic practice, these realities are not taken into account; rather, energy is assumed to be infinite and apart from the economic process of production. Since energy needs only be accessed to be used, the source of it is irrelevant aside from its cost. Without paying attention to the nature of energy (without which all activity is impossible) there is a failure to significantly distinguish between income (renewable energy) fuels and capital (nonrenewable) energy sources. Ecological economists drew from thermodynamic theory to supplement the ecological view that nature represents a constrained and constraining adaptive evolutionary system. In 1971, Nicholas Georgescu-Roegen, a Romanian economist, published The Entropy Law and the Economic Process which argued, "The Law of Entropy is the taproot of economic scarcity."17 Herman Daly, an early proponent of ecological economics and the leading theoretician of what he called steady-state economics, built on the idea that a growing economy must eventually wear out the energy potential (i.e., the organization and integration) of the natural systems in which it is embedded. Optimism based on the "philosopher's stone of technology," he wrote, requires "suspensions of the laws of thermodynamics."18 In 1992, two prominent ecological economists argued that standard models of economic growth are problematic because "they ignore the fact that the human economy is an integral part of a materially closed evolutionary system."19 Solutions Ecological economists propose that regarding natural assets as goods and services in themselves -- and hence attaching a cost to their use -- will . Schumacher's work provides a wide range of , including production by the masses,